By Dion Rabouin

By Dion Rabouin

NEW YORK (Reuters) - The dollar index rose to a more than four-month high on Friday as positive U.S. data and weak readings from overseas prompted investors to re-evaluate the likelihood of central bank policy divergence between the United States and other developed countries.

The flash Markit survey of purchasing managers, executives who make spending decisions at major firms in the United States, rose to its highest level in a year, surpassing economists' expectations.

While in Britain, the same metric fell by the most in its 20-year history, prompting UK officials to say more easing could be imminent. In the euro zone, the purchasing managers' index showed its lowest reading since January 2015.


"In the United States, fundamentally, economically speaking, indicators have shown consistency and steadiness," said Juan Perez, currency strategist at Tempus Inc in Washington. "And what we’re seeing post-Brexit is that the fundamentals of manufacturing and services in the euro zone and the UK are at peril. That’s why finally you’re seeing this type of reaction."

The dollar <.DXY> rose 0.5 percent against its currency basket <.DXY> touching a high of 97.487, its highest since March 10.

The euro <EUR=> fell to its lowest level against the dollar since Britain's surprise vote to exit the European Union. It was last down 0.45 percent to $1.0975.

Sterling was the biggest mover among major currencies. It fell 1.15 percent against the dollar to $1.3080.

Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co, also pointed out that readings on U.S. inflation, industrial production, retail sales and employment since the Brexit vote have all beaten expectations. He said that was a leading cause for investors to price back in chances of a rate hike by the Federal Reserve.

Fed funds futures rates on Friday show investors see nearly a 50-percent chance the Federal Reserve raises U.S. overnight interest rates by the end of the year, according to CME Group's FedWatch tool. The chances of the central bank raising overnight rates were below 20 percent just weeks ago.

(Reporting by Dion Rabouin; Editing by Bill Trott and Grant McCool)

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